How we paid off $100,000 in debt on one income

We saved a six month emergency fund, paid off $100,000 in debt and built up our retirement fund on one middle class income without a strict budget.

True story. We did this. But it took time (about 8 years). We made mistakes and backtracked a few times. To this day, we continue to learn and get better and are on track to retire earlier than most people.

Our Story

When my son was a baby, I was working part-time as a supervisor at a non-profit. As you can imagine, the pay wasn’t great. My mom had been babysitting, so my son was obviously well cared for by someone that loved him dearly. I had no child care costs, but all I wanted to do was be home with him.

When he was about 6 months old, I quit my job and officially become a full-time stay at home mom. Although the income from my job wasn’t high, it had been covering my student loans and a few other expenses. I had to scramble to figure out how to drastically cut expenses to make the loss of income work.

On top of that, we moved from our townhouse to a house in need of repair, with a negative net worth to boot. Although we weren’t doing great financially, my husband and I have always been somewhat money conscious, so we had a very small savings account and no credit card debt. But we certainly had student loans and car payments (I mean, come on, doesn’t everybody?).

The new (to us) house was priced under market value, so we jumped on it, knowing we’d have to figure out how to make the repairs on limited funds. Within the first three years, we had replaced the majority of the windows, half of the siding and painted the house. To save costs, my husband helped the contractors with the windows, installed the siding and painted himself. His day job is in IT, so this is not his area of expertise, but he researched and learned as he worked on it.

In the meantime, our daughter was born and my days were busy, to say the least. And during nap time, I devoured every personal finance book I could get my hands on at the library. We had already been forced into frugality due to circumstances, but I used every savings tip to cut even further. I knew we needed to build our savings up, pay off our debt, make a will, and save for retirement.

Our DIY rustic plank wall of free pallet wood

Two steps forward, one step back

In order to work on the savings and debt, we kept expenses low and sold items on Craigslist and ebay when we could. I learned to cook from scratch and kept the grocery bill low. We did not have cable and had just one, low-cost cell phone. We DIYed everything we could learn to do, and still do to this day. Clothing and other miscellaneous household items came from garage/yard sales and thrift stores.

Over a few years, my husband’s income had grown to a point that we were more comfortable. We couldn’t forget about expenses, but things weren’t as tight as previously. We saved until we had the equivalent of six months in a savings account. Around this time, the will was put into place, along with the purchase of a term life insurance policy for both of us. We were slowly paying down our student loans that totaled $40,000. Finally we felt like we had some breathing room.

Since we were feeling pretty comfortable, we went out and purchased a new SUV, a fairly nice one with a somewhat hefty payment. Ugh. And the cycle begins. Now that we had this new SUV, we could tow things! We had always enjoyed camping in a borrowed pop-up camper, but rather than just borrowing, why not have our own? No, not a pop-up camper, a full-size hybrid camping trailer complete with a bathroom, living room, kitchen and PAYMENT.

I am uncomfortable with consumer debt, so all extra money always went to paying off the loans and we rarely had a loan for more than a year. But during a span of approximately 7 years, we had purchased 7 vehicles and 3 campers! Yikes! We spent roughly $85,000+ during this time on vehicles and campers alone (we typically had a high trade in value since we didn’t keep them long).

During the car buying years, we still managed to remain frugal and paid off our student loans as well as the auto loans. We also contributed to our retirement accounts. Thankfully, my husband had a professor in college that told his students (every day they had class) to at least contribute the amount the company would match in a 401k as soon as they were in the workforce. I’m grateful my husband listened, as this gave us a head start on retirement.

Fast Forward to Today

Mistakes were made, lessons were learned. We went from a negative net worth to a net worth of $500,000+ in 10 years. We will drive the vehicles we have now until they aren’t road worthy. The only outstanding debt is our mortgage. All consumer debt and student loans have been paid off for a few years. We are focused on saving as much as we can for retirement and are slowly working on paying down the mortgage.

No strict budget

We have never had a set budget with a designated amount for certain expenses. For example, we do not have money set aside in a budget to go out to eat. We simply track expenses and income diligently. We know exactly where our money is going and how much we are spending in each area. This way, it is easier to know when we need to cut back in a certain category.

Saving is completely automatic and treated as an expense. The 401k is automatically deducted from the paycheck. Once the paycheck hits the checking account, a set amount is automatically transferred to savings. What’s left, after savings is sent off, is what we have to work with. Along the way, I have developed a system that takes less than an hour a week to track expenses, income and pay bills, so it doesn’t take much time at all.

Balance

Mountain biking in the Black Hills of South Dakota

Some may think that our frugality measures have us living a boring life devoid of luxuries. This would be far from the truth. The fact is, we cut back drastically in areas that have little value to us (clothing, services such as oil changes and lawn care, cable, dining out, etc.), while we live pretty extravagantly in others.

Balance is key, along with living life according to what you value most.

We have a gym membership and pay a monthly fee for our Tae Kwon Do school because staying healthy and active in martial arts is important to us. Traveling and camping are things we love and have never been willing to sacrifice. In fact, we take a minimum of two vacations per year and some years we’ve taken up to four vacations (we vacation on a budget!). The time spent relaxing, spending quality time and having adventures with our kids is priceless.

Our success in paying down the debt and getting control of our finances would never have been possible if my husband and I were not on the same page. Talking about money and values, looking at the expenses together and making the decision that we wanted to have the freedom to retire early are huge factors in our success.

Although we made some mistakes along the way, our path has been more like two steps forward and one step back, rather than the reverse. If I could go back, I wouldn’t change anything because the lessons learned have gotten us to where we are today.

My advice to anyone wanting to take steps to reduce debt, increase savings, or even save for retirement is to just start. Start with small changes and make them stick. Educate yourself to develop better saving and spending habits, constantly focusing on what is important to you in life. Spend on the things that you value the most and cut ruthlessly in the areas that you don’t.

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Love your story. My fiancé and I got stuck in the SUV trap as well. Smart to purchase a home below market value that allowed you to save. We went the other way unfortunately and are recently getting out of it. We also paid off most of our student loans (my fiancé still has $15k left). Luckily, we were saving in retirement accounts in parallel to paying off the debt and buying things 🙂

It sounds like you are creating your own success story, Julie. Saving in the retirement accounts as you go along is so important – that compound interest needs time to do it’s magic! You’ll never regret your decision.

Thanks for helping to normalize a balanced financial strategy! Many financial gurus advocate for fast and furious forgetting we are also human.. I struggle with spending money on vacations /clothing even though I have sink funds for them. Luckily I am constantly learning the pitfalls to avoid on my journey. I plan to drive my car until the wheels fall off also but student loans are my biggest challenge. Thanks again!

Thanks, Toni! Fast and furious is appealing and doable for some but, for most of us, having a balanced plan for debt payments and savings over time helps us stick with it more easily. It took my family several years to pay off our student loans and consumer debt. Slow and steady…

Congrats on your family’s success! Many people would love to be in your position with no debt. It takes discipline, but it can be extremely worth it. I’m like you, the thought of debt keeps me up at night. However, there are some enticing offers on credit cards right now, with 0% for 18-24 months and rewards. It can be hard to pass up those deals! Just keep in mind not having a balance when the intro period is up!

Thank you! The zero interest offers can be dangerous if you don’t pay them off before the end of the discount period! We still have mortgage debt, but it doesn’t bother me nearly as much since we have a low rate and could sell it down the road.

We never used a budget, and never had debt other then a mortgage and that first car since getting married over 25 years ago. We saved first, she coupon clipped, and did I our house repairs. We were just plain careful with how we spent. When ever we had a windfall (bonus, tax refund etc.,) we saved 90% or paid down the mortgage and invested the rest. We had vacations albeit reasonably priced ones.

What we did best of all was save enough so that the kids won’t graduate college with piles of debt.

It sounds like you have been very conscious and intentional about your finances for a long time…and it’s paid off! We do the same with windfalls – always gets invested or put toward debt. It’s great your kids won’t have to leave college buried under a pile of debt. It will get them off to a much better financial start in life. This is a great gift to your children! 🙂

It’s great to read your story! It sounds very much like my own family’s story. We also started our financial independence journey with lots of debt and made tons of mistakes along the way. But it’s amazing how much determination and persistence pay off in the end! Congrats on your progress and I look forward to reading more of your story!

Thanks, Laurie! Congrats on your progress toward FI as well! You are so right – all that persistence and determination adds up! And then, when you look back and see how far you’ve come, it’s so amazing. 🙂